My Open Letter to Peter Schiff (followup from the debate today)

An Open Letter to Peter Schiff A follow-up to the discussion on the Peter Schiff Show, December 2, 2013 (this has been emailed to Peter just now)

Dear Peter,

It was a privilege and an honor to be a guest on your radio show today. I’ve been a fan of yours for more than five years; you were one of the reasons I discovered Austrian economics (and, in turn, Bitcoin), and your eloquent explanation of consumption vs. production in an economy has guided my outlook of the world ever since. So thank you sincerely for what you’ve taught me, and for the opportunity to appear on your show. It was a really special moment for me.

While we had some valuable discussion today, I felt a follow-up was appropriate to better articulate my points. You’re right to be highly skeptical of such a new technology and monetary system, but please take the time to ensure your skepticism doesn’t blind you from what I humbly suggest is one of the most important tools for human freedom ever conceived.

The Fundamentals

First, Bitcoin must always be considered as two things: the payment network (Bitcoin) and the currency units (bitcoins). Condemnations of the latter can often be resolved with an understanding of the former. Satoshi should have named them differently to avoid this initial confusion.

When you suggest that bitcoins have “zero intrinsic value,” you are only considering the currency unit itself and ignoring the payment network. While I prefer the term “utility” over “intrinsic value” (because all value is subjective to the valuer), I may indeed admit that bitcoins, as currency units all by themselves, have no fundamental utility and are completely uninteresting. But – and this absolutely critical – the payment network has vast utility.

In fact, this network is probably one of the most valuable and consequential technologies currently on the planet. Some of us realized this a few years ago. Others are realizing it now. Many more will realize it in the future. The Bitcoin network is, fundamentally, a ledger of title controlled by no man. Ponder that for a moment. The transmission of value and ownership has thus just been severed from the State, not by impotent voting, but by the technological achievement of man.

Now, during the show, you agreed that perhaps this payment network has utility. So, if the network (Bitcoin) has utility, and only one currency is accepted on this network (bitcoins), and those bitcoins are scarce, then should not those units themselves command a market price? Who knows what that price should be, but there should be a price, no?

Any good that is useful and scarce will have a price (consider that air is useful but not scarce, and fish with three eyes are scarce but not useful, thus no price for either of them). Because the Bitcoin network is useful, and because only scarce bitcoin currency units are permitted on this network, the bitcoins themselves have a price. Indeed, they must have a price until the network is no longer useful, or the coins are no longer scarce.

This is not magic. It is not a Ponzi scheme or elaborate fraud. It’s just the market pricing something that it finds useful. As the network grows in usage, its utility subsequently grows, and thus scarce bitcoins appreciate further. Those who grabbed coins in the early days benefit hugely, just as those prospectors grabbing nuggets of gold out of the California foot hills did in the early days of the gold rush. Gold is not a pyramid scheme merely because early acquirers profit from later subsequent adoption and demand.

The Utility of Bitcoin and Competitors

So to adequately claim that bitcoins ought to have no price (which is the implicit assumption from your claim on national television that Bitcoin is a Ponzi scheme), you must demonstrate that the Bitcoin network has no utility. As someone who has transferred $100,000 worth of value to another person instantly in another country (on a Sunday when banks were closed, no less), I am confident that you will not succeed in this demonstration.

I believe that you will understand and agree with my above arguments if you objectively ponder them for a while. Your contention then moves to the following: that if Bitcoin (the network) can be replicated by anyone, it isn’t actually scarce at all and thus even though the network is valuable, the price of individual coins will fall toward zero as the system is replicated over and over by competitors. You would explain that while bitcoins are limited to 21 million units, anyone can create a competing crypto-currency and thus the number of possible crypto-currency units are unlimited, thus not scarce, and thus not fundamentally worth anything.

You made this argument several times on the show today. It is a fair point for you to raise, but please allow me to counter it.

Bitcoin, after all, cannot really be copied. True, the open-source code can be copied and the copier could release CopyCoin (indeed this is happening all the time). But, the copier cannot copy the infrastructure. The protocol layer is easily copied. The infrastructure layer is not. On Day 1 of Bitcoin, it had no infrastructure layer. I can tell you, as an entrepreneur in this space for the past few years, Bitcoin’s infrastructure layer is now substantial. Indeed, I am sitting in my office, and looking at my employees building this very infrastructure as I write this. Their work, and that of many thousands of others around the world, is not so easily replicated.

Let’s use an analogy, which you so often convincingly do when describing the absurdity of Fed policy or the counter-productive nature of various government programs. I believe the following is a very fair analogy.

Consider that language itself is a protocol – a set of rules for conveying information. Consider then that one could copy the English language, and change parts of it, and release it as English 2.0. However, why would anyone use it? Even if it had marginal improvements over traditional English, where is the infrastructure? Where are the vast tomes of literature written in English 2.0? Where are the speakers and writers and scholars of this new language? Where are the libraries and Wikipedias full of English 2.0 articles? How many newspapers are written and conveyed in English 2.0? How many Peter Schiff podcasts are disseminated in this new alternative? That infrastructure wouldn’t exist, and neither therefore, would the users. This is merely the natural, spontaneous consequence of network effect, and it applies to English as a protocol for language just as it applies to Bitcoin as a protocol for money.

Now, does the network effect mean English, or Bitcoin, can never be replaced? No. But it does mean it’d be extremely difficult in either case.

But let’s remember something. Even if a superior crypto-currency overcomes Bitcoin in the open market (certainly possible), does that make Bitcoin a failure or Ponzi scheme? Does that negate the utility bestowed by Bitcoin while the market still favors it? Consider that one can benefit from the Bitcoin network with zero or very low exposure to the currency price long term. This means a payment made with Bitcoin last year still accomplished its objective – value moved freely, the users benefited, even if a year later the system falls apart and goes to zero. Thus, there is real utility today even if the system doesn’t work next year. The assumption that Bitcoin will be around for eternity is not a prerequisite for benefiting from its utility in the present.

Mutual Respect for Market-Based Money

I think you will discover, upon reflection, that your concerns about Bitcoin boil down to the thesis that Bitcoin is a volatile, highly speculative, and non-conservative asset class. In this, I wholeheartedly agree. But if your arguments are claiming that the payment network itself is some kind of fraud – a Ponzi scheme undeserved of respect or even consideration – then I must take issue with that. The Bitcoin network is an utterly revolutionary technology. It separates money from the state, in a way that gold, unfortunately, has been unable to do.

When fully understood, Bitcoin should bring tears to the eyes of anyone who fights against the tyranny and ignorance of coercive governments and their monetary witch doctors. This is why thousands of people around the world have dedicated their lives to this campaign. We are carrying out this experiment without anyone’s permission. We’ll either fail, or change the world in a way that was inconceivable before this technology existed.

I wholly support your idea to make a gold-backed digital currency. Please do it. I’d love to be your first customer, because I love gold. But being in this business, seeing how the payments and banking and regulatory world works, I can tell you that your initiative will likely fail, either by self-immolation (GoldMoney severing inter-account payments), or by governmental take down (e-gold).

A monetary/payment system that relies on gold backing is reliant on the backer. It relies on a centralized, trusted party, to warehouse the gold and provide convertibility. This is the counter-party risk eliminated by Bitcoin.

If there is a centralized backer for any payment system, then the system will have to follow all government laws, or be shut down. To follow the laws, personal customer information must be known, meaning privacy is impossible. Transfer limits and strict terms of use will be imposed, meaning financial freedom is impossible. And have fun with the compliance costs. Have you noticed international banks dropping American customers around the world? It is due to this unfortunate dynamic. And then, if the stars align, and the gold-backed currency manages to grow big and become a successful global payments network, it’s not unreasonable to assume that governments will take it down anyway, because it would compete with fiat – from which great swaths of their power originates.

You cannot compete with fiat by having a competitor that is vulnerable to the guns of government. Bitcoin may not be perfectly immune, but it is highly resistant. Censorship of e-gold was easy. Censorship of Bitcoin will be… entertaining.

Regardless, if you’re honestly interested in trying that experiment again, I will help you and support that effort, because I recognize the value of precious metals as commodities and as money. Until such a system actually exists, I am humbly asking you to support our efforts in kind, and am humbly suggesting to you that bitcoins, while non-physical, are indeed real and indeed have real value, because they are the one currency accepted on the most revolutionary payment network known to mankind. This is not theory – it’s actually working for millions of dollars of payments every day. We’ve moved beyond the Mises textbook. We’re running in the open market.

While Bitcoin is still a highly-volatile experiment, it deserves more respect than dismissal as a Ponzi scheme, and regardless of whether you think the current price of a bitcoin unit is justified, you must acknowledge that this technology, broadly speaking, has utility both for both economic exchange and, more importantly, individual freedom.

When my grandparents ask me how to protect their wealth, I don’t tell them to buy bitcoins. I tell them to buy precious metals. When they ask me how to transfer value across distance, I don’t tell them to ship gold. I tell them to use Bitcoin. My hope in writing this letter is simply this – that perhaps you’ll come to see Bitcoin and gold as beautiful compliments and important tools in the advancement of free-market money – one long-standing, conservative, and physical, the other new, technologically and politically disruptive, and digital. One will not replace the other, but I believe both will come to replace fiat, and good riddance to that stuff.

It helps in thinking of solutions to it's flaws as well. It's not well understood and it takes a good deal of effort to try to understand it. I had to read several paragraphs and posts over to be sure I caught them correctly.

This conversation is exactly the kind that needs to be kicked to center stage.

This is where early long term investors, such as myself, anticipate that innovation will continue and that "killer app" will be developed allowing the common person to be able to use bitcoin easily and safely. It's open source so I have every reason to believe that ease of use will come in time. And I've got time. :)

Audio CDs were physical items that had a value, because they provided the utility of playing music.

Now we have a virtual replacement in digital audio files, which do not physically exist, but provide the same utility. They also provide additional utilities, free to copy, more portable, which makes them more valuable. Thus, despite their inherent value, CDs are no longer required.

Gold has a value as a metal, you can make jewellery out of it because it looks pretty and it's malleable (EDIT: also useful in industry). But it also has a value as a store of value or currency, because it has these properties: divisibility, scarcity, easily recognizable, fungible, somewhat portable.

Now Bitcoin is a virtual replacement for gold as it has all of these properties that led to gold being used as money, but it provides huge advantages on top of this. Now that we have Bitcoin, we have less need (I won't say none) for gold as a store of value/currency.

EDIT: For years recorded music could only exist in physical form, so people associated the physical form with the music, and because they were so used to it, it took time for them to be comfortable with a non-physical digital invention providing the same utility. Our children will never have this association, and will have no sentimental or habitual ties to the physical representation.

EDIT 2: Removed references to 'inherent/intrinsic" value as I agree with the replies saying all value is subjective.

Also, I meant to say thanks for posting this letter, it's one of the best pieces on Bitcoin I've ever read, tackling many of the common questions/arguments that people throw at it. This paragraph in particular is awesome:

Any good that is useful and scarce will have a price (consider that air is useful but not scarce, and fish with three eyes are scarce but not useful, thus no price for either of them). Because the Bitcoin network is useful, and because only scarce bitcoin currency units are permitted on this network, the bitcoins themselves have a price. Indeed, they must have a price until the network is no longer useful, or the coins are no longer scarce.

You could have won the argument from Peter by saying that you would backup all 21 million bitcoins with 10 oz. of gold. That way "Bitcoins are backed by gold..." and if thousands of enthusiasts would do this for an average 1 oz. for all 21 million the 'backing' could be pretty strong.

We would know it's just for show (as with banks who do fractional reserve banking) but it shuts people up.

Please don't say intrinsic or inherent or anything else that tries to separate types of value. Either something has a value or it doesn't. Out of the total value of a cd, how much was inherent and how much was something else? And what is the other type of value? How does it differ from inherent?

I didn't think about this too much, I guess I said it because it's a commonly used phrase when questioning the value of Bitcoin - it's the classic 'intrinsic value' question. I'm guessing it's usually used to try and separate the utility value from speculative value but you pose a good question, and I don't think I have a definitive answer for you.

Just pointing it out because a lot of people use the term like it's a absolute truth that value can be separated into inherent and something else. I like the analogy but I'm afraid this term has caused both Peter and others quite a lot of time arguing up the wrong tree so to speak :) Great post, keep it up!

There is a meaningful distinction between intrinsic value and the tradeable value of a currency.

Intrinsic value in this context is a sort of imprecise way of saying that it has value other than as a medium of exchange. That could be pragmatic value, sentimental value, aesthetic value, cultural value, whatever. It's not really intrinsic since the value doesn't exist if there are no people around to value it. People say intrinsic as a cognitive or literary shortcut. But this kind of value is distinct from a currency's tradeable value.

The distinction is best illustrated by taking the commodity in question somewhere that doesn't recognise it as a medium of exchange. If people still want it, then it has "intrinsic" value.

Given several assumptions, certain things do have an intrinsic value. For instance, if you assume that precious metals must necessarily be used in catalytic converters, and you assume a certain demand for catalytic converters, you can ignore all speculative value and the precious metals will still have a measurable "intrinsic value" based on how much it costs to obtain them - a price that they can't really go below.

Bitcoin may also have similar kinds of "intrinsic value" based on certain assumptions.

The cost of mining is an intrinsic value, i.e. if a miner (who has to pay for electricity) doesn't cover their electricity costs and minimum return on hardware investment, they stop selling freshly mined coins.

Inherent value often differs from negotiated value aka sale price. Audio CD's have the same inherent value they've always had, a physical store of music; but because of a less costly alternative in mp3s, the lack of demand pulls the price down on them.

It's not a bad argument, it's an imperfect analogy. Voorhees definitely had a better one in his open letter. Analogies are notoriously obtuse in argumentation. One has to understand the parallels and differences and be able to clearly discern between the two situations in order for the analogy to work properly. In Voorhees' post, he used a concept as abstract as Bitcoin to convey his point, which was that the infrastructure of Bitcoin has value. Handsomechandler's used CD's as an analogy for Bitcoin's inherent value. This analogy falters from it's incompleteness.

In Voorhees post, we have:

English is to Bitcoin as literature (etc.) is to infrastructure.

Bitcoin's (and English's) infrastructure is to Copycoin's (and English 2.0's) infrastructure as vast is to small.

Vast is to more legitimate as small is to less legitimate.

Legitimacy is to inherent value as Bitcoin's infrastructure is to English literature.

It's much harder for people to dismiss the inherent value English's vast adoption and infrastructure than it is for people to dismiss a non-physical representation of a currency. Especially when you say that the inherent value of said currency is based on it's utility, like digital music.

So you're saying if West Bank adopted Bitcoin as a currency (West Bank is a potential candidate), and allowed taxes to be paid in bitcoin, it would become "money"? Or would it only be "money" in West Bank? Does government have an exclusive right to define money?

I liken bitcoin to radio spectrum. Just as radio and TV companies buy certain bands of spectrum, owning bitcoin is like owning 1 of the 21M bands of bitcoin spectrum, each of which can be further subdivided (just as the band contains multiple frequencies). The network is like the communications network, and the bitcoins are like the spectrum.

True, utility is the intrinsic value. The packaging is what doesn't matter. If bitcoin can provide the utility of value without the costly packaging of matter (as gold/silver do) then it's the next iteration of money, and appropriately so in this era where we're sitting here typing codes of 1s and 0s to one another that is then reinterpreted on your end to read what I'm typing.

When my grandparents ask me how to protect their wealth, I don’t tell them to buy bitcoins. I tell them to buy precious metals. When they ask me how to transfer value across distance, I don’t tell them to ship gold. I tell them to use Bitcoin.

English 2.0 would probably have conveyed the idea better if it were replaced with Esperanto; Presumably 'English 2.0' would be backwards compatible with English (from a non-techie perspective).

Edit:

Also I think it would be useful to point out to Peter that bitcoin can be backed by gold (via Colored Coins), it's just that the market does not find this to be useful (maybe due to current technical burden) at the moment. Edit: iGolder shut down in recognition of the fact that Bitcoin was the way to go.

I don't like the English analogy at all... I mean there are abundant well established English's with subtle differences that are widely used. Their "infrastructures" just needed time. English itself is a modification of quite a number of other languages so who's to say we aren't speaking English 2.0 and English 1.0 already died off.

He probably meant that he would like those early adopters to not get such a high reward, and that he doesn't see other incentives to buy or use bitcoins other than to get some free money. In other words, he doesn't understand why on earth early adopters become millioners and how such system can be liked by people.

So far the biggest problem I see in bitcoin is that so many coins will just be lost. Not sure if that's a very high percentage, but to me it looks like about 20% could be lost or made inaccessible because of various events. Maybe even more. I'd like to know if there's any way to do anything about it in the future.

Thanks for a wonderfully written response. I have not listened to the debate yet.

"In fact, this network is probably one of the most valuable and consequential technologies currently on the planet. Some of us realized this a few years ago. Others are realizing it now. Many more will realize it in the future. The Bitcoin network is, fundamentally, a ledger of title controlled by no man. Ponder that for a moment. The transmission of value and ownership has thus just been severed from the State, not by impotent voting, but by the technological achievement of man."

The quote above is what I realized the minute I understood BTC about 5 months ago. True freedom/liberty is derived from property rights (including stores of value, money) What is economic freedom worth?? To some of us a lot. To most economic freedom doesn't mean much as the majority are slaves to debt. Ask the Cypriots what they think about economic freedom?

I'm not 100% convinced that Schiff really believes what he says about BTC. He sounds more like someone who has realized that he's missed another round of opportunity, and is thinking, "Shit... This thing is going to be huge. I need to buy a couple of these things, but first, let me use my influence to spread FUD and lower the price a little before I do."

I have way too much respect for Schiff to question his motives. It really irks me that people will dismiss him as a "gold salesman", he sells gold because he believes in gold and wants to protect people from a failing dollar.

The people claiming his motives are dishonest should consider that someone could read the wonderful post by Erik Voorhees above and claim he only says that because he's a "bitcoin salesman".

It's bad if it turns out that Peter is a complete idiot(which i truly doubt). But what's worse is that it turns out he is as greedy and manipulative as the people that he has been fighting all these years.

Bitcoin does not fit into Peter Schiff's current business model. He would need to reinvent himself, and that's not easy. He can't put his clients funds into btc, the volatility and risk of ruin is just too big. Moreover, for those entering bitcoin at this point, the risk of coming late to the party looks substantial.

He probably gets a lot of questions and flak from clients, who would rather have been in bitcoin than gold the last six months. An easy way out is to explain, "Ok, but it is going to end up badly, I'm not going to put my clients' money into a ponzi scheme". Like any person who has a lot of strong opinions, Peter Schiff has painted himself into a corner.

Yeah agreed: bitcoin represents a very significant crossroads for people such as himself.

On the one hand; the libertarian nature of it is appealing, as is the utility of it; on the other hand, the disruption to the old order will bring a giant pain in the ass for his business in the future.

It seems the former doesn't outweigh the latter in terms of importance just yet!

I feel many, me included, still have a lot to learn about Bitcoin. I just started seeing the value and future of Bitcoin a few weeks ago. Only after reading more on the inner workings of the system do I see it's potential superiority of a currency if only everyone in the world used it. It's still young and has problems to overcome: where to obtain it for the uneducated, where to learn about it, how to secure it. I think for the mainstream it's still beyond the complexity that most people want to bother with. I do see 3rd party companies working on creating enhancements that will increase simplicity and security. Simplifying the explanation and building up the security will be needed.

Even if Bitcoin would fail a month from you, you still can get value from it now as payment network. If you want to buy house for cash in Brazil and you are based in Ireland, bitcoin would be the easiest and cheapest way to transfer the money.

Bitcoin lacks a don't-worry-it's-not-your-fault layer. From what I've seen over the last 50 years, most people wouldn't get out of bed if they had to be responsible for their own decisions and actions.

I can tell you that your initiative will likely fail, either by self-immolation (GoldMoney severing inter-account payments), or by governmental take down (e-gold).

The Liberty Dollar is another example of a failed attempt to make a precious-metal backed currency. They not only issued paper warehouse receipts, but they also had an "e-Liberty dollar" system, too, which was an electronic money system backed by silver.

Really a great post and overall a great debate by both sides. All the flaws and benefits need to be vetted. A lot of people are just uncertain with this new technology and concept. "There must be a catch!" And if there isn't a catch now, there's probably one coming... attempted regulations, taxes, denial of access or making access to the network more difficult that people say it's not worth it?

Just like "small business Saturday," the community can choose to do more business with Bitcoin accepting businesses and merchants.

As Bitcoin grows more popular... I feel there will be a showdown brewing with either central banking authorities or private banking institutions. This might become complex to tax and also cut into traditional banking business, wouldn't it?

Either way innovation in the financial system is happening, should be a good show.

When fully understood, Bitcoin should bring tears to the eyes of anyone who fights against the tyranny and ignorance of coercive governments and their monetary witch doctors. This is why thousands of people around the world have dedicated their lives to this campaign. We are carrying out this experiment without anyone’s permission. We’ll either fail, or change the world in a way that was inconceivable before this technology existed.

It's exciting to think that we may be on the cusp of an economic revolution... don't you think? Just try to listen to the naysayers (like Schiff) longer and more carefully than your natural inclination would dictate, in order to compensate :-)

Gold bugs like Peter Schiff tend to resent inflationary monetary policy, come from the same Austrian school of economics as the bitcoin community and have political and social interests that are generally well-aligned. Getting them on board would be hugely valuable for both Bitcoin and bitcoins.

Fractional reserve doesn't lead to a dollar. Fractional reserve + FDIC leads to a dollar.

Anyway, I doubt bitcoin would be fractionally reserved much at all. It's easier to trade than the paper claims to gold issued by fractional reserve banks. There's not much of a reason for fractional reserve for BTC.

I had a hard time listening to the interview because he cut you off so many times and kept repeating the same arguements over and over again about alt-coins.

It's like saying

I have a hard time getting attention on reddit, maybe I'll just go to Digg. The attention you get on Digg will not be the same quality as the attention you will get on Reddit. The message you are trying to get out won't have the same effect.

I don't like twitter anymore.... I will start my own twitter like company to send messages. Oops, no one will ever hear you.

He just wan't getting the network effect at all.

I want to use an manhattan as an anology. Manhattan stinks, its crowded and dirty. It's far from perfect. But why is land so expensive? 1. People being there creates value. 2. Other businesses being there creates value. 3. Perceived value from both people and businesses, ramps up demand on a finite space.

Fair and balanced way to understand and explain Bitcoin! Question about: "On Day 1 of Bitcoin, it had no infrastructure layer. I can tell you, as an entrepreneur in this space for the past few years, Bitcoin’s infrastructure layer is now substantial." So how easy is it to tweak this infrastructure layer to accept altcoins?

Well, the infrastructure is all voluntary. It's people who run Bitcoin software, who support Bitcoin payments, etc. "Tweaking the infrastructure layer" means "encouraging thousands of disparate people to participate in arbitrary altcoins." For merchants, this will be incredibly complex, for years - there is no real Coinbase for Litecoins, for example.

tl;dr: How easy is it to "tweak" human infrastructure so that all English-speaking people also speak Spanish, Portugese, Latvian and Swedish?

today, because we've got such a big task ahead - convincing the world - it's not so easy/worthwhile to tweak infrastructure for altcoins (and there are a lot of them). In 10-20 years, it's possible that it'll be much easier. If bitcoin becomes brittle, with true flaws exposed, a truly innovative coin could gain significant share - maybe.

If Peter doesnt wake up soon, he'll simply be left behind. My hope is that he becomes a great vocal asset to promote bitcoin positively. His conversion to our cause would be one of those huge 'backflips' that get more mainstream media attention and he tends to get a lot of airtime already. C'mon Pete.

[I] am humbly suggesting to you that bitcoins, while non-physical, are indeed real and indeed have real value, because they are the one currency accepted on the most revolutionary payment network known to mankind. This is not theory – it’s actually working for millions of dollars of payments every day. We’ve moved beyond the Mises textbook. We’re running in the open market.

This is really well-written, and hits pretty much all the right nails on their heads. Your Hayekian insight about natural orders such as English is, I think, the linchpin of the argument.

I have some confidence that Mr. Schiff will come around eventually. After all, his father has been in prison for all these years fighting a law that Bitcoin is on its way rendering impotent. If Bitcoin had been around back then, the radical pioneering protest Irwin Schiff sacrificed his freedom for may have been far less necessary.

E&E is what I listen to on my way to work and you guys keep me updated and also make me laugh every from every show. This interview was a bit awkward to listen to because Mr. Schiff obviously has not done all the reading he should have been doing. I'm fine with people calling bitcoin a bubble or a hype, it could be either or both, but one should at least get the verifiable facts straight. It was quite cringeworthy to hear Mr. Schiff repeatedly contradict himself. Was he given a chance to review the questions upfront and do some research?

I agree that precious metals and bitcoin should not be positioned as foes. In fact, I would hesitate to recommend bitcoin to anyone that I felt may not be able to adequately protect their bitcoins. How would you feel if your life savings were lost due to an over the air update of your phone or a hard drive failure or forgetting a password with no way to recover? I love bitcoin, but one benefit that banks do provide is that they take on the responsibility of securing your wealth for you. Of course that does come with all the drawbacks of a fiat currency and government regulations but having one's wealth secured shouldn't be dismissed as a trivial benefit.

For me, it still seems similar to a pyramid scheme that's going to mostly benefit Satoshi, the Winkilvi and early adopters. Everyone else gets a little utility and some peanuts, like 10 bitcoins.

Satoshi has 1 million and the Winkilvi had a few hundred thousand last year. Who really knows how many bitcoins random early adopters, mining collectives or silk road dues own. My guess is it's a ton. Bitcoin is transparent yet anonymous, so you'll never really know if you're just getting a few peanuts.

Actually, everyone knows how many they have. It's all listed in the blockchain, that's how we even know the BTC is moving in the system or how many BTC we have to our own names... It just takes some effort to read them.

Here's a question that I'm sure someone has an answer to. What's to stop any one government from slowly buying up most or all of the bitcoin currency, and then simply refusing to allow the general population to trade in it, or only allowing it to be traded as they issue it, or even choosing to sell it all at once, dropping it's value by a huge margin?

I've read a fair amount on Austrian economics, so I'm sure this is a stupid question - feel free to point out the flaw in my thinking :)

BTC is very divisible so what would end up happening is the coins still 'out there' would become more valuable, thus the cost of obtaining them would go up. The whole thing would continue to spiral as they bought more and more coin.

You absolutely killed it on the show, Erik. You made really well reasoned arguments, stayed level headed even when Peter had trouble connecting the dots, and kept the dialog at a level that was understandable to everyone. Bravo.

Well said. Overall Peter Schiff seems to know his stuff in the fiat world, but that said it is clear he thinks with a fiat mind when it comes to Bitcoin.

It is a great point to make that Bitcoin is not so much the Bitcoins themselves as the usability and freedom of the payment network they ride around on. This is something I will include in my explanations to new people.

I used to think Peter Schiff was brilliant. After listening to him in this debate, I've lost a lot of respect. The point that he makes about the government screwing it up or trying to end it is stupid. Certainly somewhere down the line we will be able to synthetically make gold, so does that mean we shouldn't use gold anymore? Come on Peter, quit being so stubborn.

When fully understood, Bitcoin should bring tears to the eyes of anyone who fights against the tyranny and ignorance of coercive governments and their monetary witch doctors.

This sentence made me remember an episode I had, thought I should share so maybe others can recognize it as well.

I felt this exact feeling when I realized that Bitcoin was better than metal. This near deafening scream erupted in my mind, maybe the voice of my father from years ago, you'll know it once you feel it.

An excerpt from my journal written during this epiphany:

_BEGIN

20130927

Another lost day, contemplating, what am I doing here. DeJaVu, like I have no choice. What is my direction now. Converting everything to Bitcoin, I feel I have no choice. Trade the metal in. I think back to the {server} rack I bought in ATL. could have run miners makes me fucking sick. I have to do something. If I missed the run to $1,000 with less than {...} BTC, ANOTHER MISSED OPPORTUNITY? I couldn't live that way. Just need to focus on myself for a while. But what am I doing now. What if you lost it all. What then. Well fuck at least you FUCKING TRIED MAN. God you fucking tried. I can't live with this missed opportunity. If it died, at least there was no missed opportunity when in ATL. I can't handle that shit. If it crashes.. I would have had to buy in 2012 and then sell. It wouldn't be a hold.. I can't feel guilty losing there.. I think this life is killing you. You have changed so much. It's time to risk it all. You're running out of time. I can't live this way anymore. IM SORRY. BUT I WOULD RATHER LOSE IT ALL THAN MISS IT AGAIN. CANT MAKE THIS MISTAKE AGAIN.

_END

I started to notice the on balance volume of the Chinese exchange which sealed the deal. Trading all my metal in was one of the hardest things I've ever had to do.

One thing I don't understand is why people like Peter Schiff worry about having multiple crypto-currencies. Isn't he a proponent of the free market? The belief that we should only have one stems from government currency. In the future I envision there being multiple currencies actively in use in any given country, much like gold, silver, and platinum.

Competition is generally good, but in this case there are big disadvantages to not quickly rallying around a single standard. Each new currency dilutes the value of all other currencies. If new currencies continue popping up, then nobody can store value in any one currency due to rapid inflation.

Some things, like the internet, only work well when everyone rallies around one standard. Research into better networks and currencies will always be a good thing. But in both cases, it is better to move from one standard to the next only when there are very good benefits to doing so (like going from IPv4 to IPv6) as the disruption has major costs.

Right now bitcoin is clearly in the lead. It is unlikely that features of other currencies cannot be carefully added to its system, as demand requires. Until some new feature becomes absolutely necessary, which cannot be implemented on top of the bitcoin system, it is better economically to stick with the existing winner.

A very well written, and respectful letter, one part stood out to me which immediately invoked a thought:

just as those prospectors grabbing nuggets of gold out of the California foot hills did in the early days of the gold rush. Gold is not a pyramid scheme merely because early acquirers profit from later subsequent adoption and demand.

then leading to this:

Bitcoin, after all, cannot really be copied.

One day in the future, gold will be able to be "copied" through refinements and advancements in fusion, and it will get to a point where it can be done cheaper than it is to buy or mine the gold, by the time it becomes possible, even if it is incredibly energy intensive, we may have harnessed cheap and bountiful energy through that same process of fusion.

Mathematics on the other hand, do not change, and one can simply raise the difficulty of the encryption algorithms to negate any useful attack based on the processing power at that time.

Now, this may not happen for another 30 years, 50 years, who knows, but it will happen at some point as science and technology continue accelerating in their discoveries. At which point what is the more secure and valuable currency?

I think you really did well answering his objections. Got to admire Schiff for taking this on in an intellectually honest manner.

Edit: I think money has become like a language or mass delusion. Fiat money works to an extent. the ironic thing is non libertarians are completely on board with an unbacked money. The y object and it's hard to believe they're serious that the money supply need to expand.

One quick comment on why foreign banks are dropping American customers. The IRS is currently instituting some sort of tax on foreign banks who have minimum contacts with U.S. customers. I don't know many details; rather, this was shared with me by someone writing a seminar paper about international taxation in law school.

Ultimately, I think it supports your overall point that the state poses a serious risk to freedom in the financial sector. I think this is especially true of a state that has pushed itself to the brink of desperation for revenue as a result of massive debt, like the U.S.

Of course, if the state perceives bitcoin as a threat to its control/ability to obtain revenue, then we might see some pushback. I am curious to know what you would think about that possibility. I also must admit that my knowledge of bitcoin is quite limited. I'm simply at the stage of fascination.

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